The Gao’s were part of an old and highly respected family of Taiwanese capitalists. Taiwan, the Republic of China as opposed to the Peoples Republic of China, otherwise known as Mainland China or Communist China, was a modern society with a relatively free economic system, even though it was not an entirely democratic one.
The Gao’s were a native Taiwanese family; they had preceded the arrival in 1949 of the two million Mainland Chinese, refugees who had fled the regime of Mao Zedong, after the communists had won the long civil war against Chiang Kai Shek’s nationalists. The conflict had raged between different factions since the fall of the last imperial dynasty in 1912, when Sun Yat Sen was nominated as the first president of the newly founded Chinese Republic.
The founder of the industrial and business empire, the Yu Mei Tang Corporation, was S.C.Gao’s great-grandfather. He had been born nearby the southern Taiwanese city of Kao Hsiung in 1860. He was a wealthy landowner, whose rice paddies had been farmed by landless peasant labourers as far back as anyone could remember.
When the S.C.’s great-grandfather inherited the family estate in 1890, he had completed his studies in Shanghai and Peking, and had already assimilated progressive ideas carried by the wave of modernisation that had unfurled from the west.
Taiwan was then a distant and unruly province of a decadent and disintegrating China, embroiled in the turmoil at the end of its last imperial dynasty, attacked by invaders from the west, and menaced by the Japanese from the east.
The large subtropical island, which the Portuguese had called Formosa, meaning beautiful, lay at the crossroads between east and west to Japan, and from north to south between the great treaty ports of China. Foreign ships and adventurers from all lands frequented its lawless ports.
It was under these conditions the young Gao decided to set up his first factory, to produce sugar from the cane that grew abundantly in the hot humid climate of the island.
In the beginning, his young industry was not a success and suffered great difficulties. The islands economy was constantly disrupted by the lawlessness that then reigned. The provincial imperial administration in Taipei, forgotten by distant Peking, was totally corrupt and ineffective.
In 1892, an incident occurred, which was to change the fortune of the Gao family and the future of Taiwan.
The Japanese Empire with its burgeoning economy and industries was seeking new markets, and power, not unlike the western models they emulated.
Their natural choice had been territorial expansion to the north, where they were in direct confrontation with Imperial China over the control of Korea. It was part of the great carve up of China starting with its vassal states, by the colonial powers.
The recently modernised Japanese fleet, with battleships and cruisers built to western designs, met the Chinese Imperial fleet, which had barely changed over the centuries, in the Yellow Sea. The result was that Japan inflicted a cruel defeat on China, not only in military terms, but also in pride and in race.
The so-called ‘dwarf barbarians’ from the east had humiliated the Middle Kingdom. They demanded reparations in recognition of Chinas defeat and errors. These reparations were in the form of the unconditional secession of the islands of Taiwan, and the Pescadores to Japan.
The Imperial Government in Peking was in no position to negotiate, and Japans occupation of Taiwan commenced. The Government in Tokyo immediately integrated Taiwan into the Japanese administrative structure. Taiwan was organised on Japanese lines. Officials and businessmen were dispatched from Tokyo, to transform Taiwan into a modern Japanese Prefecture.
The arrival in Kao Hsiung, of law and order and a structured local government, changed the Gao family’s prospects almost overnight. Business improved and the sugar factory prospered with new and stable markets in Japan. They also acquired access to engineering knowledge and machines, from the new Japanese industries that were attracted to Taiwan, and the prospering ship repair yards that were springing up along the islands west coast.
The industrial activities of the Gao family grew, extending into other areas related to the by-products of sugar. One of these was paper, necessary for packaging their products, which was manufactured from bagasse, the waste fibre from the remains of the crushed sugar cane.
The prosperity of the family grew over the years. Their solid conservative background, as rural landowners, steered them clear of the endless speculation of the city businessmen, whose fortunes rose and fell overnight.
They opened their first branch office in Taipei for the sales and distribution of their manufactured products. They the bought sugar cane crops from the nearby farmers, dictated conditions and controlled prices. They organised transport and distribution and influenced local government. The large banks that recognised a good investment courted them.
Japan had brought prosperity to Taiwan, but at a price. They had imposed their language in schools, their culture and system of administration.
The Taiwanese resented the Japanese presence, but they were forced to accept the changes under the threat of severe penalties for resistance and disobedience from the occupiers.
The situation on the mainland of China was barely encouraging. The turmoil of revolution was followed by civil war, as the successors of the Qing dynasty began their struggled for the control of power, under leadership of Chiang Kai Shek, and the communists, under Mao Zedong.
The western powers took advantage of the situation to increase their humiliating demands for new treaty ports and concessions, whilst the Japanese sized Manchuria for themselves, setting up a puppet state.
Then World War II came, and after its initial success Japan was defeated. It was a devastated nation and its colonial possessions were returned to their rightful owners. Taiwan was returned to China, which was no improvement for its people, after the suffering and privations of the war, in which their sons and their industry had been pressed to serve under the imperial banner of the rising sun.
The ancient disorders soon returned when the incompetent and corrupt Nationalist administration was re-established on the island. However the days of Chiang’s government on the mainland were numbered as the communists gathered force and advanced. Finally, in 1949 Chiang ‘temporarily’ evacuated the Nationalist government to Taiwan.
Lao Gao had struggled to maintain the family business afloat, but the shortage of materials and spare parts, as well as markets, after five years of a war that had expropriated the production of their mills, had bled the business dry.
Once again, distant events were to change their fortunes and destiny. The arrival of Chiang and his two million followers, bankers, businessmen, intellectuals, adventurers, as well as a constant fear of invasion by the communists from the mainland, transformed the economy of the island into a capitalistic fortress.
The development and economic miracle of Taiwan was underpinned by American dollars, it was a bastion against the encroaching communist menace for the free world.
The defeat of the Nationalists and the shock of the communist take-over, was followed by the Korean war, which mobilised industry, supplying the western armies in their fight against the spectre of communism, which they feared would overflow into all countries of the region.
The Gao’s family business prospered once again and grew, and when Lao Gao passed away his son Xiao Gao succeeded him. The years of the economic miracle were followed by spectacular growth. In Vietnam the war brought misery to its peoples and more wealth and prosperity to Taiwan and the other countries of the American camp in Asia.
In 1975, the still conservative grandsons, finally heeding Chiang Kai Shek’s exhortations, to export and develop their businesses and commercial relations in future markets, began to look overseas for opportunities.
They were excluded from Communist China and its zone of influence for obvious reasons, and from Japan and Western markets, because of the sophisticated needs of those markets. The Gao’s paper products were not up to standard, they had not yet reached the quality neces
sary for more discerning consumers.
They therefore looked to the regional markets of South East Asia, and were met halfway by the diaspora of overseas Chinese, who in turn were seeking partners from whom they could acquire products and technology, but at a level compatible with the development of their own adopted countries, as well as partners who could participate in their industrialisation through investment.
It was at this moment that Gao’s eldest son S.C.Gao was recommended to Jani Sutrawan, a Jakarta businessman and a member of the overseas Chinese community. His business reputation and money had been made in timber and forestry operations, through his links with influential members of the government and high-ranking army officers.
S.C.Gao knew of Sutrawan indirectly, through their separate business dealings with the Guo Min Pulp Mill in Taiwan. Sutrawan shipped raw material, in the form of pulpwood from his forest clearing operations in Indonesia, to the Taiwanese pulp mill. Whilst Gao bought paper pulp from Guo Min, where his family were also a minority shareholder. They had no direct business relations with Sutrawan and what was more, there had never been any specific reason to develop them.
Both S.C.Gao and Sutrawan spoke the same Chinese dialect, Hokkienese, which was spoken in Taiwan and in the mainland province of Fujian across the straits from Taiwan. Apart from that shared language, they had extremely different backgrounds and personalities.
Gao’s family had been steeped in traditions of Confucian philosophy and filial respect. They carefully cultivated their family wealth and investments, whilst Sutrawan had started life as a rice porter in the port of Surabaya. He had risen from that lowly position, with the instinctive genius of many of the overseas Chinese entrepreneurs, to become a rich industrialist and also a great spender and playboy.
At that time the Indonesian Governments policy was to encourage investment in the development of the paper industry, to supply the needs of the expanding education system and government services. Sutrawan saw the opportunity of creating an association with Gao. Firstly Sutrawan would have a protected market, importing the raw materials in the form of paper pulp from Taiwan then converting it into finished paper products, protected by customs tariffs on imports. Secondly he could continue his expansion through the development of a locally based paper industry, enjoying a monopoly, which guaranteed him handsome profits.
They thus came to an agreement, to construct in joint-venture a paper mill. For an initial investment of only ten million US dollars, the mill was built with the possibility to extend its capacity fourfold as the market need grew.
Gao and Sutrawan were wise, in the sense that they did not want to carry the total risk for the investment, nor for the loans that were needed to set up the mill. Gao set out to involve the Taiwanese government in the business, not directly, but rather through the aid of the Taiwanese Eximbank, a state institution designed to aid exports on the American model.
The second partner was the semi-state owned producer: Guo Min Pulp Company, in which the Gao family owned a significant minority holding through Yu Mei Chih Paper Co.
The design of the mill and its main machinery came from Taiwan, financed by a generous loan from the Eximbank. Local Indonesian subcontractors, essentially friends of Sutrawan, supplied the buildings and civil engineering. Guarantees were set up through a series of arrangements with the Bank of America and its Taiwanese branches.
When the new mill started production, the raw material, paper pulp, came from Taiwan...this however, was not entirely exact, since the wood to make the paper pulp originally came from Indonesia, from Sutrawan’s forestry operations. The tropical hardwood was shipped to Taiwan, at less than twenty dollars a ton. The wood was cut from his mangrove and forest clearing operations in Sumatra and then transported to Guo Min’s mill at Taitung, on the East coast of Taiwan. There the wood was transformed into paper pulp and exported back to Indonesia with a high added value, at a price of 500 dollars a ton.
The newly created company in Indonesia was baptised Bintang Agung by Sutrawan. They transformed pulp into printing and writing paper, which was sold to their distributors at about 1,000 dollars a ton. The initial production was fifty tons per day, bringing in 17.5 million dollars a year. When the mill was extended to its full capacity, it would reach 70 million dollars.
The mill was built for a quarter of the price it would have cost in Western Europe, and was completed in half of the normal time.
The investment was highly profitable. It was manned almost entirely by Taiwanese engineers, who worked day and night and were paid only five hundred dollars a month, with one annual leave each year of two weeks, returning to visit their families in Taiwan.
The unskilled and semi-skilled labour force was Indonesian, paid between fifty and one hundred dollars a month. Needless to say Sutrawan’s men, who were all Indonesian-Chinese, provided the management.
Ennis first met S.C.Gao in Taipei. Brodzski had figured out that they could not set up the project without an operator; one who had local knowledge and who understood the region and its business methods. The operator could supply the skilled staff to operate the mill at a reasonable cost, once it came into production.
Europeans and Americans were not prepared to support the living standards and conditions in those remote regions for long periods of time, because of the isolation and lack of basic comforts.
Specialists from France or almost any other Western European country would only expatriate themselves providing the conditions were right. That was to say, that they live as latter day colonial masters, in sumptuous residences provided with the staff worthy of an English Lord, to cook, clean, garden and chauffeur their cars, with international schools for their children, and regular trips back home in business class. That cost their employers three or four hundred thousand dollars a year, compared to the Taiwanese company man at maybe ten or fifteen thousand dollars.
Brodzski had learnt that the Taiwanese were becoming active in that type of operation. He also knew that Banque de Berne had a branch in San Francisco, not surprisingly named The Bank of San Francisco, which had established a representative office Taipei.
Ennis faxed a certain Steinberger for assistance, who replied that they could arrange a number of appointments with business people in Taipei. Amongst those were S.C.Gao, who Ennis had never met, and the Taiwan Sugar Company with who he once had contacts in the past.
When Ennis arrived in Taipei he discovered a bewildering city, as any other European or American arriving there for the first time. The air was filled with a fine haze of dust that rose from the never-ending building and road construction works, which had started slowly in the early fifties and continued since at an ever-accelerating pace.
The traffic was intense and appeared to advance with a disconcerting degree of anarchy, combined with that extraordinary Chinese sense of practicality. The traffic police gave the impression of directing the endless stream of vehicles with the sole intention of preventing the overstressed drivers from an excess of improvisation.
Taiwan was in reality a Chinese province, which had escaped communism. There was relatively little outside influence, especially from the West, in spite of their long and close relationship with the USA. Anything American in appearance was superficial and deceptive.
The population spoke two languages; Mandarin and Taiwanese, the former being the official dialect of Mainland China. Ennis at once discovered that few people spoke a comprehensible English once outside of hotels and business circles. English was spoken in the upper levels of companies engaged in overseas trade. French and other European languages were as obscure to the average Taiwanese as would Hokkienese or Sichuanese have been be for a European.
Ennis was overwhelmed by the extraordinary profusion of advertising and signs, a mad competition to attract the eye, but which only succeeded in drowning the senses. The street names were in Chinese, and hotels and restaurants were known by their Chinese names.
As his taxi headed into the town centre to
wards the Hilton, he was invaded by the kind of sinking feeling that accompanies the knowledge that a hopeless task lies ahead. It did not strike him as the ideal place to find the kind of people who would understand his objectives. He figured that his only hope would be the man at the Bank of San Francisco, whom he hoped would help him through what looked like an impossible obstacle course, he would certainly be an old hand at guiding ignorant foreigners through the business and cultural maze of Taipei City.
Ennis felt lost, his elementary knowledge of Chinese Mandarin simply led to confusion, his familiarity with cities like Hongkong was of little help to him in what seemed like depressingly insurmountable difficulties. His effort to communicate with the taxi driver failed, the driver simply looked blankly ahead and seemed to grasp the wheel of his taxi a little tighter, he certainly had other worries that day than trying to understand the incomprehensible words of his foreign passenger, who did not even make the effort speak a civilised language.
The Hilton Taipei was a dreary hotel, paying nothing more than lip service to the Hilton group’s reputation in other Asian capitals. His first thoughts were to get out of Taipei as quickly as possible, back to one of his preferred westernised havens.
The following morning, after some difficulties he found the Bank of San Francisco. It was housed on the first floor of a down in the mouth looking local bank, which certainly did not appear to be amongst the leaders in the local banking profession.
Steinberger greeted him with an air of puzzled curiosity. He was a young man of about thirtyish. He affected the standard pin stripe style with light coloured horn rimmed glasses, as preferred by bankers and assiduously cultivated by their younger executives.
‘Well, er, Mr. Ennis what can I do for you?’ he asked, looking doubtfully at a copy of the telefax that Ennis had sent him. It was as though it was the first time that he had ever seen it.
Ennis outlined Papcon’s relations with the Banque de Berne hoping the name would spark some interest. That of course fell flat; he was in one of their offices, even if it was a distant branch.
‘My secretary has prepared a list. I have called some of the companies to inform them of your visit,’ Steinberger said almost disinterestedly. ‘I suggest that you contact them to fix up some appointments.’
Ennis was forced to conclude that his visit did not appear to be very high on Steinberger’s list of priorities that day, and that was about as long as his discussions with the Bank of San Francisco lasted.
As the French say demerdez-vous, Ennis thought consoling himself. Fifteen minutes later he was back on the street in the dust and heat trying to hail a taxi. He returned to his hotel room to consider his next step.
As was often the case when Ennis found himself in an impasse he was forced to sit back and analyse the situation using his intuition to seek a solution, something that had served him well in the past.
He carefully checked out the list and moving down the names one by one trying to determine who was who, finally stopping at a certain S.C.Gao, whose name bore the title Vice President. He called the number and Gao’s secretary informed Ennis that he was present that morning.
Gao received Ennis in his offices located in the business section of Taipei. It was the Yu Mei Chih building. He had after a brief telephone conversation agreed to meet Ennis and had arranged for him to be picked-up at his hotel. The car was a late model black Cadillac with a uniformed chauffeur; it was more fit for a Chicago mobster than the head of a conservative business empire. Ennis was whisked smoothly through the traffic and in a matter of minutes in Gao’s offices.
Gao was a plump, smartly dressed man in his early forties. His smiling friendly appearance bordering on the jovial was misleading. Ennis later found him to be a serious, competent, no nonsense businessman. Gao was highly critical of frivolity in business, or for that matter in just about any other area.
He did not drink and was certainly not a womaniser. Gao’s greatest pleasure consisted of testing the culinary delights of his country’s inexhaustible variety of cuisine. It was his pride, like many other Chinese of good family, to perpetuate the great diversity of the arts, culture and traditions of his country.
Gao was intensely proud of the achievements of the Republic of China, in addition, and not without lacking a little modesty, his own technical and scientific knowledge.
Over lunch in a smart Shanghaiese restaurant, decorated with elaborate gilded carvings depicting scenes from Chinese mythology, Gao suggested that Ennis contact a certain Jani Sutrawan in Indonesia, a business associate and explained that they jointly owned a paper mill on the outskirts of Jakarta. Ennis first wondered whether Gao’s company could co-operate in Papcon’s project, but on reflection decided to follow Gao’s suggestion by first meeting Sutrawan.
Gao went on to suggest that before leaving Ennis visit his mill in Kao Hsiung. He described with evident pleasure the background of the Gao family’s industrial group, Yu Mei Chih, an eighty million dollar a year company, in the business of paper making and publishing.
A CULTURAL INTERLUDE
Borneo Pulp Page 12